Bollywood Fever: Ford Motor reported a decline in second-quarter adjusted profit on Wednesday, attributed to persistent quality issues and a struggling EV business, which led to an 11% drop in shares during after-hours trading. The Detroit automaker posted an adjusted profit of 47 cents per share, falling short of analysts’ expectations of 68 cents, according to LSEG data.
Executives emphasized ongoing efforts to address structural inefficiencies and transform both gas-engine and EV operations, but Wall Street remained skeptical. Morgan Stanley analyst Adam Jonas pointedly questioned Ford CEO Jim Farley during the company’s conference call, noting, “You said that Ford’s a different company from what it was three years ago, but the stock market really doesn’t seem to agree with you at all on that.”
Since taking over in October 2020, Farley has prioritized fixing Ford’s quality problems, hiring a new executive director of quality and altering production practices to minimize errors. Despite these efforts, Ford continues to lead the industry in the number of recalls. Warranty expenses increased by $800 million in the second quarter compared to the previous quarter, primarily due to older vehicles launched in 2021 or earlier. Ford Finance Chief John Lawler stated that these expenses were a one-time cost increase and expected the second half of the year to align with warranty cost expectations.
Ford maintained its annual earnings guidance of $10 billion to $12 billion before interest and taxes. Lawler reassured that the current quarter should not be seen as derailing the year’s plan, emphasizing that the transformation process would encounter bumps along the way.
Legacy automakers, including Ford, have scaled down their EV ambitions due to easing demand, a shift towards hybrids, and intense competition from Tesla and Chinese EV makers. Earlier this month, Ford revised plans for a Canadian assembly plant, initially intended to build a three-row EV, to instead produce the F-150 pickups due to high demand.
Farley acknowledged the challenges in the EV sector, describing the journey as “humbling” but ultimately beneficial for the company’s overall fitness. He highlighted efforts to expand Ford’s global hybrid portfolio by 40% this year and develop a lineup of affordable, smaller electric vehicles through its California-based “skunk works” team.
Ford recorded a $1.1 billion operating loss for its EV and software division in the second quarter, adding to the $1.3 billion loss in the first quarter. Executives anticipate a pretax loss of up to $5.5 billion for the year in this division.
Despite Ford’s messaging on reducing structural costs, some Wall Street analysts remain unconvinced. CFRA Research analyst Garrett Nelson noted, “Investors may be losing patience with the story despite management’s insistence that it is laying the foundation for profitable, long-term growth.”
Ford’s commercial vehicle business, described by Farley as the company’s “secret weapon,” continued to drive overall profit, posting an operating profit of $2.6 billion for the quarter with operating margins of 15%. Meanwhile, General Motors reported stronger-than-expected second-quarter profit and revenue, raising its annual forecast for the second time this year, yet faced stock declines due to concerns over the auto industry’s future resilience.
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